Insurance Advocate May 21, 2012 by C Acunto

VOLUME 123, NUMBER 10 / May 21, 2012

New York • New Jersey • Connecticut • Pennsylvania • Washington D.C.

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May 21, 2012

CONTENTS

[ IN THE ASSOCIATIONS ]

PIA’s Company Performance Surveys Underway

LENMONT, N.Y.—The Professional Insurance Agents of Connecticut, New Hampshire, New Jersey and New York State Inc. have launched their Company Performance Surveys available through June 29, 2012. PIA gauges insurance producers’ views of the companies they represent and lets Independent agents rate the companies with which they do business on only 20 performance items, including: claims handling, products and pricing, technology, marketing support and answer five questions to evaluate their relationship with the carriers. “I encourage all independent insurance producers (owner/principal, sales staff, service staff, underwriter staff, IT staff, etc.), whether they are PIA members or not, to take part in this survey,” said Timothy G. Russell, CPIA, president of PIACT. “This survey offers agents a forum to provide their companies with candid and anonymous feedback regarding their interactions with their agents.” Launched in 2002 by PIACT, the Company Performance Surveys build on years on historical data collected by each respective association. PIA members can view this data on the PIA website at www.pia.org/GIA/cps/cpsjump.php. “PIA continues to build on the information distributed to the rated companies and their agents. As in years past, companies will be able to request detailed packets of information of survey results specific to their business,” said Lisa Nolan, CPCU, president of PIANH. “This has made the survey an indispensable tool for agents and for their companies. Building on this tradition, PIA will continue to offer more detail this year.” Upon request, companies may receive information comparing their results to survey averages as well as including specific, anonymous comments from agents on their services, among other information. New for this year, PIA will obtain comparable data for companies based on company classification (e.g., regional, superregional and national). “When both agents and companies work together to improve the way they do business through marketing data and communication, consumers are the ultimate beneficiaries,” said Keith Savino, CPIA, president of PIANJ. “The Company Performance Survey helps to strengthen the interaction between agents and their companies to provide companies with an understanding of what agents need from them in order to do their jobs well.” “Enthusiasm for the surveys and anticipation of the results continues to grow,” said Richard A. Savino, CIC, CPIA, president of PIANY. “The Company Performance Survey is popular because it provides a rare chance for agents to share their experiences and recommend needed improvements to their companies.” To access each state association’s Company Performance Survey log on to: www.pia.org/CT for Connecticut; www.pia.org/NH for New Hampshire; www.pia.org/NJ for New Jersey and www.pia.org/NY for New York state, and click “Take the Company Performance Survey” under “What’s New.” [IA]

[ COVER STO RY ]

[DE PA RTMENTS] In the Associations . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Face to Face, By Michael Loguercio . . . . . . . . . . . . . . . 6 Insight, By Peter H. Bickfor . . . . . . . . . . . . . . . . . . . . . 12 On the Level, By N. Stephen Ruckman . . . . . . . . . . . 14 Crackdown. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Accuracy in Advertising . . . . . . . . . . . . . . . . . . . . . 26 Courtside, By Lawrence N. Rogak . . . . . . . . . . . . . . . . 28 Classiﬁeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Looking Back. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 In the News . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

www.insurance-advocate.com Like us on Facebook… The Insurane Advocate Magazine INSURANCE ADVOCATE / May 21, 2012 3

[ FORE WORD ]

Steve Acunto

“Partners” In this issue of the Insurance Advocate Peter Bickford’s column premieres on page 12. Peter is a longtime, rather astute observer of the business, whose work we have featured with great pride over the years. We believe that, in keeping with the Insurance Advocate’s mission to observe regulation and legislation that affect the progress of insurance, as well as to look out for the livelihood of independent insurance agents and brokers, always seeking to improve the system as it now exists, we are advocates for good insuring practice on all sides. Peter Bickford has earned many stripes in this very same advocacy sphere and we welcome him to our pages….. We are pleased, as well, to run articles in this issue that break ground in a different part of the geography, most notably, an article from the NAD, a self-regulating advertising enterprise, regarding the modification, potentially, of Allstate Insurance Company’s so called “mayhem” ads. We understand how difficult it is for independent insurance agents to compete with direct writing agents, with mixed format “agency companies” and, of course, with the giant direct writers whose ad budgets are outsized and ponderous. Some of the great icons of American television and media are made up in large measure of the competitors to independent insurance agents. And that’s fair in our system of free enterprise, but what is not fair is inaccuracy in advertising. The Insurance Advocate intends to undertake a careful look at this growing problem, especially when and where consumers are urged to be their own “agents” effectively, often with unintended bad results. Truth is a great playing field leveler. We feel that this problem must be understood by those who regulate and those who wish to compete fairly.… A hardening market ahead? Everyone is saying so; media, pundits, opinion makers and panelists. Keep your eye on the ball, it is happening…We note with great pleasure that Victor Marques, a seasoned reinsurance executive, has joined US RE to add to its already great strength in reinsurance brokerage. The Pearl River powerhouse is on the move…Another focal area that we are introduced in these pages more than a year ago has come to pass. We are following a very interesting lawsuit between two gigantic insurers that relate to policy adjustments affecting life settlement policy holders that could impact the entire set of STOLI investors and participants... more on this ahead.… One last note, PIA has undertaken its survey of agents’ vis a vis companies; we encourage your participation and frankness. The days are gone when “partners” have it easy on either side of the equation. The bigger players, the companies, depend upon good independent agents to a great extent and, of course, agents depend upon them. But the process gets muddied when the distribution force is taken for granted or when companies are not properly interfaced with agents. There is a balancing act here and survey’s like this one, although not usually very piercing or incisive, are nonetheless a good first step in identifying who the real “partners” are. Be sure to respond. [IA] 4 May 21, 2012 / INSURANCE ADVOCATE

VOLUME 123, NUMBER 10 MAY 21, 2012

EDITOR & PUBLISHER Steve Acunto, 914-966-3180, x110 sa@cinn.com CONTRIBUTING EDITOR Peter Molinaro CONTRIBUTORS Peter H. Bickford Jamie Deapo Michael Loguercio Sari Gabay-Raﬁy Lawrence N. Rogak N. Stephen Ruchman Jerry Trupin PRODUCTION & DESIGN ADVERTISING COORDINATOR Creative Director Gina Marie Balog, 914-966-3180, x113 g@cinn.com SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x117 circulation@cinn.com PUBLISHED BY CINN Group, Inc. P.O. Box 9001, Mt. Vernon, NY 10552 (914) 966-3180 Fax: (914) 966-3264 President and CEO Steve Acunto

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[ FACE TO FAC E ]

By Michael Loguercio

How About A Little Phone Text? If u cn rd this den u prbly no where im goin wid this article.

exting. It’s everywhere. Everyone is doing it. Don’t worry, it won’t hurt, and I promise you won’t get pregnant the first time you try it. Very quickly it is replacing all means of electronic communication, and I would venture to say that eventually it will replace email as we currently know it. In fact, texting has already surpassed emailing in adults, and is also the main form of communication in teenagers. Don’t believe me? Take a look at your family cell phone usage and see how your Michael Loguercio mobile minutes have dropped dramatically and your text messages have increased tenfold…just from 6 months ago. In addition to taking and sending photos, text messaging is the most common non-voice application we Americans use on our mobile phones. Approximately 73% of adult cell owners use the text messaging function on their phone daily. Text messaging users send or receive on average of 41.5 messages per day, with the median user sending or receiving 10 texts daily. Just think about all of the texts that you most likely send on a daily basis…chances are you are over the average. We use texting for almost everything, after all, who has time to call anymore…just pick up your cell, and text a note. Chances are you will receive a reply in text form immediately. I can be sitting at my desk upstairs, and I will receive a text from my kids telling me that Mom has dinner on the table! What ever happened to just yelling from the kitchen that dinner is ready? However, with all of the convenience that texting brings us, it may also lead to unrealized exposures in this thing of ours. So many questions are being asked about insurance agencies and texting, that it is becoming a major concern among both agencies and carriers. In fact, insurance 6 May 21, 2012 / INSURANCE ADVOCATE

advocate groups are now researching both the benefits and ramifications of texting in your daily business routines. Jeff Yates, Executive Director of ACT (Agents Council for Technology) recently said, “We frequently get questions from agents about client texting: how should I handle texting both from and to my clients; what is the best workﬂow to capture these communications within my agency management system; how do I protect myself from the E&O exposures that arise from texting?” In addition, he forwarded and has allowed me to share with you “The Reality of Texting for Insurance Agencies” in which agency consultant Pat Alexander provides some very helpful guidance to insurance agencies on how to best handle these communications given the current state of technology.

The Reality of Texting For Insurance Agencies by Pat Alexander During every meeting I have attended in the last few months, there have been questions and discussions on “should an agency allow texting by its clients and staff and if so, how do we control Errors & Omissions and documentation in our agency management system?” Empowered clients are going to communicate with agents in the manner most convenient to them, so the real issue becomes how is the agency going to manage texting if the client prefers to use it? In this article, I discuss several concerns agencies have with texting, current “best practices” for managing these communications, and the technology options for managing texts and importing them into your systems as I understand them. There may be other options and not everyone uses Microsoft Outlook. Your technology professional should be able to assist you with the details. Agency Concerns 1. If clients are texting staff members on their personal phone, a number of issues come to my mind: a. What if your staff member is on vacation where their phone is

not functioning or they are just too busy to take care of the issue? b. What if your staff member is ill and not able to pay attention to incoming messages on a realtime basis? c. What if the individual is actually no longer a staff member? d. What if the individual says they will take care of the request and does, but doesn't document in the system and something is not correct? I have heard more than one agency principal ﬂatly state that they weren't going to allow any texting. Others don't see any way to stop people from texting but don't know what to do with it and how to set parameters. A number of people commented that it was seamless to attach an email, voicemail or other documentation in their agency management system, but not so texts. Since it is difficult to manage the capture of the text information, they want to ban receiving texts. We need to remember that capturing email information in an agency management system was not always easy. Once upon a time we copied the emails and pasted them into an activity or note since we couldn't attach anything to our agency management systems. Through communication with the various agency management vendors from their user groups, the vendors enhanced their systems to handle email attachments. From this grew the ability to easily attach various other attachments and we hope vendors will create streamlined workﬂows for capturing texts as well, possibly as a part of their mobile apps. The initial attachment functions were "clunky", but as time and technology have progressed, this function has become more streamlined. In today’s world, texting is a reality. It is not only your young clients that are engaging in this act. Texting eliminates telephone tag, and results in an almost instant response. This is what many of us are programmed to want. continued on page 8

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[ FAC E TO FAC E ]

Current “Best Practices” I recommend you consider taking the following approach with regard to texting: 1. Do you want to be relevant to your client base? If so, then you must embrace this technology. 2. Set standards and best practices. These really are no different than handling face-to-face conversations, phone calls, emails, etc. Your standard should be that all conversations with the client or with others about the client’s account are to be documented in the agency management system or the system which you are using to collect client data. 3. Be pro-active and determine how to best receive texts at the agency level and educate your staff and clients. 4. If your client and someone in your agency are friends, inevitably there will be a text on a person phone. Deﬁne, train and implement the process to get this moved to an agency level as quickly as possible. I don’t see that there is any more of an errors & omissions exposure in receiving and responding to texts than there are in phone calls, emails or face-to-face conversations. The biggest issue I believe agencies have at this time is how to make this format work for them as seamlessly as possible.

2. Some phones will allow you to capture an entire text conversation. In this case it could be acceptable that the conversation continue on that phone and then be captured and sent to the business email address for attachment into the agency management system. This would be the best approach when the conversation is just a question and answer session. 3. It is important for everyone in the agency to learn how their specific phone works for text forwarding: a. iPhone – http://iphonefaq. org/archives/97335 ; Another approach is to take a picture of your iPhone screen when the text is showing, by pressing the on/off button on the top of the phone simultaneously with the application change button on the bottom front of the phone. This approach creates an image of the entire text message and the picture can then be emailed to your Outlook account. b. Android Phones - Each manufacturer handles this in a different way and I find even some differences within a manufacturer between their phones. It is best to check the operating information for your specific phone for this function.

Forwarding Texts to Email Here are some thoughts I have on this process that I have picked up from users who have already addressed this issue: 1. As soon as the initial text is received on a personal phone, forward it to your business email address. Text a response back to the client from your business Outlook account. The client's text response will come back into the email which will let you accumulate the stream of the conversation which can then be attached to the agency management system.

Sending Texts from Email Microsoft Outlook can be used as a tool to manage text messaging with your client. There are several steps to setting up and implementing the use of Microsoft Outlook. However, like anything else that you do, if you invest the time to research, implement and train a process, the rewards will be great. The best place to start the research is on the web at Ste Up text messaging (SMS) in Outlook. http://office.microsoft.com/en-us/ outlook-help/send-and-receive-text-mess ages-smsHA101823438.aspx#_ Toc261416088

continued from page 6

Microsoft has done a really good job here of explaining the options available for using Outlook and providing lots of screen shots. Implementing an Agency Text Address I also recommend that the agency implement a way to receive text messages directly. I understand from my tech friends that many VoiP phone systems can have a number set up for receipt of text messages. I am also advised that this works differently with every system and that you will need to work with your phone system provider to get this set up and implemented. Once set up, someone in your agency will need to monitor this number during business hours so that the expected immediate response can be managed. If your agency does not have a VoiP system, another option available for receiving texts at a number that you control is to set up a Google Voice number at https://www.google.com/voice . In the Settings section of your Google Voice account, you will ﬁnd a place to show the email address for Text Forwarding. When you receive these text messages, they should then be forwarded to the Outlook email address of the individual in your agency who will be handling this client. Once the number is set up, you should promote it to your clients, so that those who want to communicate in this manner can do so. When agency employees receive text messages on their phones, they should let that individual also know there is a number that is attended during business hours and would get attention even when the employee is not available. Finally, some important points about texting to keep in mind: 1. If the client texted you, that is how they would like to communicate, so at least your initial response should be in a text. 2. If the client texted you, they expect an immediate response as that is what the

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[ FAC E TO FAC E ] continued from page 8

common expectation is with texting. 3. Your employees should know the agency’s procedures for documenting text messages in the agency’s system, just as they would other communications from clients and business partners. Patricia Alexander, CIC is a consultant, coach and mentor with many years of experience in retail agency and MGA settings. She may be reached at pat@patale xander.com. Alexander developed this article for the Agents Council for Technology (ACT), part of the Independent Insurance Agents & Brokers of America. ACT’s Web site is www.independentagent.com/act. This article reﬂects the views of the author and should not be construed as an official statement by ACT. Recently on the convention front the Insurance Club of Buffalo held their annual Buffalo I-Day, which is the largest one day insurance event in the country, and included over 1200 attendees and 125 Exhibitors. As usual, President Dawn Caci of Travelers Insurance Company and her entire committee did an incredible job bringing this event together at the Buffalo NY Convention Center. In addition to a sold out event, as usual the Luncheon & Keynote Speaker was also a huge success, as Nancy Snyderman - NBC News, Chief Medical Editor; and author, spoke to the enormous group of afternoon attendees. The afternoon session was a bit different this year: dubbed “Afternoon Delights” where presenters such as Tim Herzog from the Flying Bison Brewery, Mark Marotto from Marotto’s Restaurant, and Bonnie and Connie from Stuffed Chocolate Ltd. talked about their local businesses. All three shared their thoughts about following their passion into the business that they have developed. Afterwards, samples were available for all in attendance. Thank you to everyone who contributed to this insurance event, and to all of you who stopped by my EZLynx booth to say hello at the trade show like Karen Morgott and Lori Kuzuch from Niagara National Insurance; Gary Cassia from MetLife; Brian and Ellen Steklof from Steklof Insurance Agency; Dena Cesar from Cesar Insurance; Steven Huefner 10 May 21, 2012 / INSURANCE ADVOCATE

DAWN CACI PRESIDENT OF THE INSURANCE CLUB OF BUFFALO ADDRESS THE LUNCHEON ATTENDEES

BUFFALO I DAY-EXHIBIT HALL

from Moses Insurance; Linda Kruszka from Main Street Agency; Kathy Lawler from IIABNY; and Darryl Terranova from Terranova Insurance. Well, until next time when we will be speaking about some other events and topics that impact our industry, “Ciao for now!” [IA] Michael Loguercio is the Regional Sales Manager for Webcetera-EZ Lynx; active Past President of the Young Insurance Professionals of New York State; current ACT/AUGIE, Professional Insurance Agents of New York State, Independent Insurance Agents and Brokers of New York State, Council of Insurance Brokers

of Greater New York committee member; and in 2010 was honored with the NY-YIP Insurance Professional of the Year award. In his community, Michael is President of the Longwood Central School District Board of Education on Long Island, NY; and is a member of The Middle Island, NY, Rotary Club and Central Brookhaven Lion’s Club. He is a regular Contributor to the Insurance Advocate and may be contacted at 631345-9359 or michael@web cetera.com. You may also follow him on Twitter @MLoguercioJr; and on Facebook @ Michael Anthony Loguercio Jr.

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[ INSIGHT ]

By Peter H. Bickford

By Way of Introduction… Welcome to our ﬁrst Insight column! When Steve Acunto asked me to write a regular column for Insurance Advocate, my first reaction was negative. At this stage in my career, why undertake an assignment with deadlines and the constant pressure to come up with something interesting and informative for the readership? Then I went back and reviewed a

ing of the department chiefs, is that this lofty statutory purpose was simply salve to cover the true intent of the administration to pursue enforcement over productivity, punishment over growth, and rules over efficiency in the marketplace. Me? I believe in giving the DFS a chance to prove that it can carry out the legislative intent and properly balance its

Much of my focus – at least initially – will be on the regulatory and legislative side, particularly in New York. This is not just because I love to pester the administration (which I do), but also because the regulatory landscape has totally changed with the creation of the new Department of Financial Services. Peter H. Bickford

number of back issues of IA and realized that its readers might enjoy, even profit by, a pointed voice to pepper its content. I have accepted on the premise that Steve's goal is to have someone be able to voice what is on the minds of many and should be on the mind's of all parties in the insuring process.... even if it means occasionally pointing out that the emperor has no clothes. And who better to provide this counterpoint than someone who has been in the insurance business for more than 40 years and has participated in and observed the ups and downs of the business and its regulation from a number of vantage points. Much of my focus – at least initially – will be on the regulatory and legislative side, particularly in New York. This is not just because I love to pester the administration (which I do), but also because the regulatory landscape has totally changed with the creation of the new Department of Financial Services. According to the statute creating the DFS, its principal purpose is “to encourage, promote and assist banking, insurance and other financial services institutions to effectively and productively locate, operate, employ, grow, remain, and expand in New York state;…” The concern of many, at least out of hear12 May 21, 2012 / INSURANCE ADVOCATE

role as regulator for the benefit of the industry and its consumers. But I will pester and goad them along the path. Starting now… An important sign of how the administration views its role is through its public pronouncements. So let’s look at the public releases of the DFS. During the first four months of 2012, the DFS issued 27 press releases. Of these 27 releases, 16 related to the banking side: • 12 specifically addressed the very important foreclosure issue statewide; • 1 announced a conversion to a state bank; • 1 announced appointments to a bank advisory board; and • 2 addressed the investigation of force-placed insurance by banks. The other 11 releases related to the insurance industry, and covered the following topics: • 1 announced former insurance superintendent Wrynn joining the Goldberg Segalla law firm; • 1 announced the executive order to by-pass the Legislature and move forward with the creation of the politically charged health exchanges; • 1 announced the ability for p/c companies to file rate and form requests

via the DFS website; and • Each of the remaining 8 insurance related press releases announced an enforcement action or audit directed at some segment of the industry including insurers, service providers and agents. The target activity of each of these releases was unquestionably an important and meaningful topic for DFS action. But where’s the balance? There was not one DFS press release in the first quarter of 2012 relating to support for or growth of the industry! While 4 months may be too short a time to reach any meaningful conclusion, it is enough to raise concern about the main focus and objective of the DFS. Curiously, one action of the DFS this year that could be considered as industry friendly even with its flaws – commercial deregulation – was not the subject of a DFS press release. The subject was touted by the DFS at industry functions and in the trade press (including IA), but apparently the topic of helping domestic insurance companies expand their ability to underwrite large commercial risks was not sufficiently “on message” to warrant a release to the general public. As I pointed out in an article on the merger of banking and insurance appearing in these pages last September (“Consolidation,” Insurance Advocate, September 28, 2011) the administration was to be commended for addressing the concerns of the industry in the originally proposed merger legislation to make it as much about helping the insurance business thrive in New York as it was about enforcement against abusers. The jury is still out on the issue of whether or not the DFS will be able to achieve this balance, although the press release indicator was not encouraging. I assure you that I will continue to observe and report on the issue. And here is a teaser for my next column: Because of the liquidation of Executive Life Insurance Company of New York, the aggregate life guaranty fund caps have been exhausted. Without new legislation, there is no current life guaranty fund coverage for New York residents! My thanks to Steve for giving me this opportunity, and I look forward to a continuing dialogue with IA’s readers! [IA]

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[ ON THE LEVEL ]

By N. Stephen Ruchman

A Lawyer Walks into a Market of Last Resort …

have a client who happens to be an attorney. I’ll call him Joe for purposes of the story I’m about to share. Joe recently called me for advice about a client of his who was having a problem with the New York State Insurance Fund. I understand the client was audited and the NYSIF incorrectly classified certain offices of his business. Joe was trying to straighten this problem out, and went from office to office

who had a problem with the Fund. My client was insured there for more than 35 years and never had any reason to interact with the organization until he received an audit bill. The Fund had begun charging premium for two officers on the basis of minimum payroll for active officers. These were inactive officers who had sold their practice to someone else. They remained officers and check signers for the company

My client was insured there for more than 35 years and never had any reason to interact with the organization until he received an audit bill.

N. Stephen Ruchman

at the Fund without any success. By the time he called me, he was totally frustrated with the bureaucratic jams he was running into. I couldn’t help but laugh at the irony in the situation—I said, “Joe, this is why I send clients to a lawyer when they’re having trouble with the State Insurance Fund!” I wish there were a funny punch line to this, but unfortunately, working with the Insurance Fund is no laughing matter. Joe finally found someone in the Fund’s New York City office who could help with the problem, and he was directed to confirm the solution with a subordinate in the same office. When the subordinate heard from Joe, his nose was out of joint because he felt Joe had gone over his head, but at least he had gotten something done. Joe asked me how anyone gets anything done with the State Insurance Fund. “How can you do business with them?” he complained. I said, “Joe, I don’t even get a commission with the fund—At least you are getting billable hours for your work.” Jumping at the opportunity to commiserate, I shared with Joe my own recent experience trying to help a client of mine 14 May 21, 2012 / INSURANCE ADVOCATE

upon legal advice, until the payout for the company was complete. This would protect them in case of an issue with the buyer. For nonpayment of $132 in additional premium, the State Fund threatened to cancel the policy. The insured tried to explain the problem, but found he was talking to deaf ears. The policy was canceled; the business was left without coverage, and subjected to severe fines. My client went from person to person at the State Fund; in the New York City office, then the Albany office, and was told by each person with whom he spoke that they had no authority to address this problem. Finally, he spoke with someone who was able to reinstate the policy, but only months later. It’s typically difficult to work with any large bureaucracy, but I have personally been able to overcome the challenges of dealing with the NYSIF by working with PIANY, which has developed a strong working relationship with them. I have called PIA Director of Research Dan Corbin, CPCU, CIC, LUTC, and usually, within two weeks, he can get the problem

resolved. It’s good to see The SIF responds to PIANY, which is known for fostering positive relationships with policymakers on behalf of its our members and clients. I have to say one of the many benefits of PIA membership is the speedy help I always get from the association’s staff in Glenmont. I also should thank the employees at the SIF and recognize the successes we’ve had working with them. The beef agents have with the organization isn’t really with the individuals who work there, and they must take the brunt of the resentment the producer community, which frankly, feels taken advantage of because of the unfair advantage the SIF has over them with regard to rating and compensation. The NYSIF, along with private insurers, were authorized by legislation in 1914 to write workers’ compensation insurance. Because the NYSIF is the market of last resort, the state has given it great latitude in competing with private insurers, so not to become the “dumping ground for bad risks that no company would insure” (from the 1915 Annual Report of the Industrial Commission). Independent agents don’t earn a commission for policies written through the NYSIF, despite the inordinate amount of time we spend straightening out issues. On top of all this, the Fund has extraordinary authority because it is not subject to cancellation laws that typical agents face; and it is exempt from licensing and other requirements of the Insurance Law. The NYSIF operates at a significant cost advantage to private carriers. The only tax liability to which it is subject is the New York state franchise tax and the MTA surcharge. One would think that with these enormous advantages, the NYSIF’s underwriting would be more flexible; but as I mentioned, the Fund is known as an excessively frugal organization, tough on audits and for squeezing every penny they can get from its policyholders, who have told me they receive as little respect as we agents get. Unlike its residual market counterparts, the NYAIP and NYPIUA, the NYSIF marcontinued on page 16

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kets itself actively. It also uses its competitive advantages, such as its advance-notice cancellation requirements, easy payment plans and an accommodative rating structure, to ensure that it gets and keeps business—not the type of operation one would expect a residual market to engage in. Responding to regular requests for help from its members, PIANY has repeat-

edly urged the NYSIF to include a factor in its rates to compensate producers for their services, which are essentially the same services they perform in connection with workers’ compensation policies they place with their regular commercial carriers. But, NYSIF’s statutory rating provisions prevent it from providing compensation to the insured’s broker of record. Throughout the first part of the year, PIANY volunteers have met with their

Responding to regular requests for help from its members, PIANY has repeatedly urged the NYSIF to include a factor in its rates to compensate producers for their services, which are essentially the same services they perform in connection with workers’ compensation policies they place with their regular commercial carriers. But, NYSIF’s statutory rating provisions prevent it from providing compensation to the insured’s broker of record.

local lawmakers, asking them to answer the association’s call to remove the NYSIF’s exemption from licensing and other insurance requirements as one of the key issues PIA is asking them to consider. I hope they take this matter seriously.[IA] N. Stephen Ruchman, CPIA, is a retired partner of B&B Coverage LLC. A past president of the Professional Insurance Agents of New York State Inc., he is an active supporter of PIANY, and has sat on, or chaired, nearly every committee including the Executive Committee and the Long Island Advisory Council and PIANY’s Political Action Committee. A graduate of Michigan State University, with a major in insurance, Ruchman is past president of the Peninsula Counseling Center and a member and past president of the Rockville Centre Chamber of Commerce board of directors. He is division chair for the Insurance Division of the United Jewish Appeal and has served on the business advisory of The First National Bank of Long Island. He can be reached via e-mail at SRuchman@aol.com . 16 May 21, 2012 / INSURANCE ADVOCATE

[ CRACKDOWN ]

DFS Fines Insurers $2.7 Million DFS Investigation Uncovers Widespread Violations, Consumers “Left In Dark”

enjamin M. Lawsky, Superintendent of Financial Services, announced that 15 insurers have been fined $2.7 million because they failed to notify small businesses that they were eligible to buy special insurance coverage for mental illnesses and children with serious emotional disturbances. Oxford was fined $1.3 million, Empire almost $500,000, and HealthNet and MVP more than $200,000 each. The insurers are being fined for violating notification requirements under Timothy’s Law. The law states that insurers must give small employers the option of purchasing the extended mental health benefits when they buy or renew their basic health insurance plans. “Mental illness can have devastating consequences for families. It’s essential that people understand that insurance benefits are available for treating mental illnesses and that businesses know this option is available,” Superintendent Lawsky said. “We are very pleased that the Department of Financial Services has taken our concerns seriously. Superintendent Lawsky and his team are to be commended for upholding the right of small groups to purchase the complete Timothy's Law mental health benefit as required by the statute,” said Shelly Nortz, Deputy Executive Director with Coalition for the Homeless and Steering Committee member of the Timothy's Law Campaign. The Superintendent said the violations were discovered after the Department of

The Department’s investigation found that the violations occurred during calendar years 2009 and 2010. In addition to the insurers fined, Department examiners also polled additional insurance companies, but those companies were not found to have failed to provide the required written notifications.

Financial Services investigated complaints from a number of small businesses. The businesses said they would have purchased the coverage for their employees, but were never advised of that option when they purchased or renewed their basic health insurance plans. Under Timothy’s Law, insurance plans – for both large and small employer groups -- are required to provide 30 days of inpatient treatment and 20 days of outpatient visits for mental health treatment. Large group plans with more than 50 employees are mandated to provide coverage for treating biologically based mental illnesses and children with serious emo-

Insurer Amount of Fine Oxford/United ...........................................................................$1,313,980 Empire HealthChoice...................................................................$480,440 HealthNet.......................................................................................$260,680 MVP ...............................................................................................$215,630 HIP .................................................................................................$187,570 Independent Health .....................................................................$112,350 HealthNow.....................................................................................$101,640 Total $2,672,290 18 May 21, 2012 / INSURANCE ADVOCATE

tional disturbances at a level that is comparable to coverage for non-mental health conditions. The law requires insurers to offer small groups the option of buying this level of comparable coverage as an extended benefit. Small groups are those with fewer than 50 employees. Timothy’s Law is named for Timothy O’Clair, a 12-year-old boy from Schenectady County who tragically took his own life in 2001 when his family was unable to obtain adequate mental health treatment needed for their son. Timothy’s Law became effective in 2007. The fines being levied against the 15 insurers are the first fines ever against insurers for violations of the law. The Department’s investigation found that the violations occurred during calendar years 2009 and 2010. In addition to the insurers fined, Department examiners also polled additional insurance companies, but those companies were not found to have failed to provide the required written notifications. The insurers being fined said the violations were not the result of conscious intentions to evade the requirements of the law. They all agreed to take steps to prevent the recurrence of violations in the future. [IA]

Serving New York, New Jersey, Pennsylvania and Connecticut Since 1889 www.insurance-advocate.com

By Michael Fliegelman, CLU, ChFC, AEP, RFC

ADVERTORIAL

A Holistic Approach To Your Future Practice

elcome! I’m Michael Fliegelman and I’m the President of SWAN, Strategic Wealth Advisors Network. I’m also a Mass Mutual brokerage director. For the past 28 years, I’ve been helping insurance producers build their practice through the financial services business. As an advisor to advisors, I do training, mentoring and work collaboratively with agents and brokers in the field, so they can work effectively with their clients in the areas of financial planning, estate planning, life insurance planning, disability insurance planning and long-term care insurance. Today, I want to focus on the relationship between the two types of insurance agencies: the traditional property, casualty, and business insurance agencies, and the life insurance agencies. Most insurance practitioners work in one culture or the other, and they tend to work apart and in isolation from one another. For example, if you work in life insurance, you are not likely to be passionate about working with property and casualty. On the other hand, when you build your business through property and casualty, the stepchild is likely to be life insurance, disability and any services related to financial planning. My approach is to take a holistic view of our work together. By marrying the property and casualty agency with life insurance, disability, and any services related to financial planning, my colleagues are able to build successful businesses. I see each aspect of insurance and financial services as interrelated, where no one part is stronger than the whole, and every part is needed to create a strong and integrated business practice. Why take a holistic approach? When you take a holistic approach, there is a lot of opportunity to ensure a greater level of client loyalty and satisfaction. Also offering additional services to your clients, such as financial planning, estate planning, life insurance planning, disability insurance planning, long-term care insurance, and comprehensive investment solutions, will provide you with additional revenue opportunities. By not taking a holistic approach, you run the risk that the services your

clients are not getting from you, they will instead get from competitive agencies. You are forcing your clients to seek help from other competitive agencies who may also provide the same services that you offer. This puts your competitors at a distinct advantage of developing relationships with your clients! Lost opportunity not only means lost revenue, it could also mean that eventually you will lose your clients. You might not be having holistic financial conversations with your clients because you are not comfortable doing so without having the right expertise. My job is to give you this expertise, so then you can ask your clients the tough questions about business succession and estate planning. I am committed to giving you the confidence and competence necessary for you to feel comfortable in discussing all forms of life insurance, disability, long term care, employee benefits, pensions, retirement plans and annuities with your clients. Having access to new knowledge and resources will give you the ability to make a positive impact on both the lives of your clients, and on your bottom line. Each month, I will be writing an article in the Insurance Advocate to provide you with knowledge and best practices for building additional revenue streams in your insurance business. I hope to assist you in having discussions about how to develop new ways for you to serve your clients. Your questions and feedback is very important to me. Please email me at Michael@ MichaelFliegelman.com or call (631) 262-9254. Michael Fliegelman, CLU, ChFC, RFC, AEP®, is an independent insurance and financial consultant with offices in Long Island and Manhattan. Michael is a leading authority on estate and business succession planning and has extensive experience in analyzing life, disability and long-term care insurance policies. He has a special talent for helping clients approach their financial planning in a holistic and comprehensive manner and has been a featured commentator on Fox News and in Newsday.

INSURANCE ADVOCATE / May 21, 2012 19

[ COVER ]

By Malcolm S. McNeil, Esq. and Ismael Bautista, Jr., Esq. , Fox Rothschild LLP

20 May 21, 2012 / INSURANCE ADVOCATE

[ COVER ]

ertain lawsuits create a snarl of considerations that require an adjustor to carefully assess the ramifications of the dispute and litigation in a way that effectively weighs the future costs against the ongoing exposure to bad faith and the implications of dealing with insured and uninsured claims within the context of the negotiations. This article focuses on the issues confronting these assessments in the mediation context where the claims blend coverage issues, exclusions, and imminent future litigation.

Assessing Coverage Issues These issues become especially pointed when trying to assess coverage issues surrounding malpractice claims against lawyers when the carrier is dealing with the adverse results in an anti-SLAPP motion. In California, SLAPP (Strategic Litigation Against Public Participation) actions are brought where the claims are deemed protected because they implicate an infringement of constitutional rights, typically involving free speech. The SLAPP statute is codified under California Code of Civil Procedure section 425.16, which provides in relevant part as follows: (a) The Legislature finds and declares that there has been a disturbing increase in lawsuits brought primarily to chill the valid exercise of the constitutional rights of freedom of speech and petition for the redress of grievances… (b)(1) A cause of action against a person arising from any act of that person in furtherance of the person's right of petition or free speech…in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim. *** (c)(1) Except as provided in paragraph (2), in any action subject to subdivision (b), a prevailing defendant on a special motion to strike shall be entitled to recover his or her attorney's

fees and costs. If the court finds that a special motion to strike is frivolous or is solely intended to cause unnecessary delay, the court shall award costs and reasonable attorney's fees to a plaintiff prevailing on the motion, pursuant to Section 128.5. However, the scope of SLAPP has been broadly extended in the last 20 years and each month a series of cases are published, which further define the scope of SLAPP. For example, Midland Paciﬁc Building Corp. v. King, 157 Cal.App.4th 264, 267 (2007)(the anti-SLAPP statute can apply to breach of contract claims); Carpenter v. Jack In The Box Corp., 151 Cal.App.4th 454, 472 (2007) (statements made as to an employer’s investigation of an employee’s alleged sexual harassment were not protected as an official proceeding authorized by law or as an issue of public interest); Jespersen v. Zubiate-Beuchamp, 114 Cal.App.4th 624, 632 (generally, legal malpractice actions are not subject to the antiSLAPP statute); Navarro v. IHOP Properties, Inc., 134 Cal.App.4th 834, 842 (2005) (claims based upon statements made in the context of negotiating a settlement fall within the anti-SLAPP statute); Paul v. Friedman, 95 Cal.App.4th 853, 865 (2002) (claims based upon conduct occurring outside arbitration, and not made in connection with an issue under consideration or review in arbitration, are unprotected by the anti-SLAPP statute). Attorneys representing plaintiffs bringing lawsuits are confronted with antiSLAPP motions, especially in cases where the suit brought involves libel, slander or the prosecution of an underlying claim, which was deemed unmeritorious, or in malicious prosecution actions. In such cases, where an unsuccessful plaintiff turns around and sues their own lawyer for failure to properly advise on the potential of a SLAPP lawsuit, the coverage issues will be relatively straightforward. However, situations arise whereby the opposing party will bring a malicious prosecution cause of action against both plaintiff and plaintiff ’s counsel alleging that the malicious prosecution lies in the bringing of such a lawsuit, which should not have

Malcolm S. McNeil is a partner at Fox Rothschild LLP, and he is co-chair of the firm’s International Practice Group. McNeil’s practice areas include litigation, mediation and international law, and he can be contacted at 310-598-4173 or mmcneil@fox rothschild.com.

Ismael Bautista, Jr. is an associate at Fox Rothschild LLP, and his practice areas include litigation and insurance law. Bautista can be contacted at 310-598-4171 ibautista@foxrothschild.com.

continued on page 22

INSURANCE ADVOCATE / May 21, 2012 21

[ COVER ]

…the defendant argued that the allegations constituted protected activity and thus brought an anti-SLAPP motion, which was granted. The grant of the motion included a statutory award of attorney’s fees, which ultimately was made a judgment of the court against the plaintiff and her counsel, Francis Diaz. Defendant’s counsel proceeded to seek enforcement of the judgment by instituting post-judgment collection proceedings against the underlying plaintiff’s counsel, Diaz, contending that the court’s order of attorney’s fees against her, as counsel for plaintiff, violated the facial language of the statute. 22 May 21, 2012 / INSURANCE ADVOCATE

continued from page 21

been brought in the first place. Where a defendant brings such an action, insurance carriers have typically relied on the malicious prosecution exclusion under the errors and omissions (E&O) policy to deny indemnification to the insured lawyer. However, such a simplistic approach to the coverage issues can dramatically increase the costs of the litigation and, at the same time, expose the carrier to bad faith allegations because of the multi-tiered analyses that is sometimes sidestepped. These issues were brought to the forefront in connection with a recently published decision in California, Moore. v. Kaufman, 189 Cal.App.4th 604 (2010). A reading of the Moore decision is confusing to the extent that the reader is unfamiliar with the case whose procedural history spanned over nine years. The case involved a plaintiff who brought an action against a lawyer alleging, inter alia, malpractice in connection with the lawyer’s advice rendered to a board of a medical clinic. In the simplest form, the defendant argued that the allegations constituted protected activity and thus brought an antiSLAPP motion, which was granted. The grant of the motion included a statutory award of attorney’s fees, which ultimately was made a judgment of the court against the plaintiff and her counsel, Francis Diaz. Defendant’s counsel proceeded to seek enforcement of the judgment by instituting post-judgment collection proceedings against the underlying plaintiff’s counsel, Diaz, contending that the court’s order of attorney’s fees against her, as counsel for plaintiff, violated the facial language of the statute. On several occasions, the matter was brought before the California Court of Appeal, which held that Diaz was untimely in her assertion of her defenses. However, in 2010, the Court of Appeal reversed its earlier decisions upholding the attorney’s fees award, fighting a little utilized doctrine known as “manifest injustice.” The Court claimed that the continued enforcement of the award would be manifestly unjust primarily because the anti-SLAPP statutes only authorize attorney’s fees to be levied in a successful anti-SLAPP motion against the plaintiff individually, not against the plaintiff ’s counsel. As the underlying order

was being enforced against both the party and counsel, the appellate court found manifest injustice and reverse the court’s orders nunc pro tunc back to the date of the original order at the trial court level granting the anti-SLAPP motion. The appellate court brought to light a number of factors that garnered notoriety for the Moore case within the legal community and likely made it singular in its factual setting. As one example, Diaz refused to answer questions at a judgment debtor’s examination, which ultimately led to her being jailed for a period of time. Moreover, Diaz threatened to bring malicious prosecution action against the counsel, Kaufman, and its counsel in the underlying action. Finally, separate contempt proceedings were brought against Diaz in connection with the post-judgment enforcement proceedings. One would expect a malicious prosecution action against counsel, which typically would be excluded under the terms of an E&O policy. However, such policies also provide for a defense of counsel separate and apart from the indemnification. If the carrier is resolute in relying on the malicious prosecution exclusion, this can be a dangerous course because of the inevitable cross claims. Such claims will implicate a waiver of the attorney/client privilege, which occurs in malicious prosecution actions, and a protracted litigation cycle as the counsel, and underlying counsel, will struggle over what information was provided and when. Such infighting during litigation can only serve to enhance the position of the plaintiff in the malicious prosecution action. Consequently, the real question is how best to assess the exposure in the malicious prosecution action and determine what economic benefits can be obtained via a settlement in the mediation. As background, in interpreting California Insurance Code section 533 (which prohibits coverage for willful conduct), courts are “reluctant to frame coverage based on isolated allegations in the underlying complaint.” Markel American Ins. Co. y G.L. Anderson Ins. Services, Inc., (2010) 715 F.Supp.2d 1068, 1076, citing United W Grocers, Inc. v. Twin City Fire continued on page 24

ADVERTORIAL

ROAD TRIP TIPS… AS THE WEATHER GETS warmer and the kids get out of school, thoughts turn to summer vacation. Families around the world take to the road. According to the U.S. Travel Association’s travelhorizons™ research group, 76% of leisure travelers go by car. Helping clients understand the hazards of and prepare for travel is another value-added service of the true insurance professional. Road and weather hazards can wreak havoc with your vacation. Oil collects on roadways, making them slippery after a rain. Sun glare is a problem at any time of year. Potholes are an unfriendly souvenir of the past winter, caused by freezing and thawing. Summer weather also means an increase in insects smashing into your windshield. Be aware of your surroundings – motorcycles, bicycles and pedestrians are much more prevalent on the roads in warmer weather. Preparation and planning, including proper vehicle maintenance, is always important. Check your vehicle’s washer fluid and coolant levels prior to leaving, as well as the air pressure on the tires, including the spare. An emergency kit is essential when traveling in any weather. In addition to jumper cables and a first aid kit, bring a flashlight, drinking water and nonperishable snacks, flares and reflectors. A GPS and other electronic navigational aids are not foolproof. They may not have the latest information, or satellite coverage may be unavailable. Bring a map and compass with you as a backup if you are traveling in areas that are rural or unfamiliar to you. If you intend to rent a vehicle when you travel, check with your insurance agent, as well as local regulations. Your personal insurance policy may not provide coverage for your use of the vehicle, especially if you are traveling internationally. Use of recreational vehicles, including mopeds and golf carts, may require separate coverage. Personal property anywhere in the world is generally covered under your homeowners policy. However, there are limitations

when the property is usually located at another residence. Alert someone of your travel plans, especially if you are driving in remote areas. However, it is not a good idea to post the information on Facebook or other social media sites. You do not want to leave your home and possessions exposed to unwelcome visitors during your absence. Stop your mail and newspaper, or have someone collect them to make the house look occupied. To avoid water damage, turn off the water supply to washing machines and toilets. Unplug appliances such as the television and other electronics. All passengers in the vehicle should wear seat belts at all times. Not only is this a safe and smart practice, it is the law. If you are traveling with small children, check that the car seat is properly installed. A Centers for Disease Control test of 3,500 car seats determined that 72% were used improperly in ways that could seriously increase a child’s risk of being injured in a crash. Never leave a child unattended in a vehicle. Even on relatively cool days, a car can heat up quickly. Cracking the windows does not really help. According to San Francisco State University, since 1998, an average of 38 children per year die from hyperthermia (heat stroke) after being left in cars in the United States. More than half of these deaths occurred because the child was “forgotten” by their caregiver. Get in the habit of checking your back seat to be sure you did not leave a child there. Pets in vehicles are subject to the same haz-

ards of death by hyperthermia (overheating). According to petfinder.com, about 1/3 of dog owners and 11% of cat owners take their pets with them on vacation. If you must take Fido or Fifi with you, do not leave them in the vehicle. Keep your family safe. Never drink and drive, and never text or phone while driving. According to the CDC, in 2009, 181 children aged 14 and younger were killed in alcohol-related crashes. Of these, about one half were in the vehicle with the impaired driver. Even hands free devices can be distracting. According to the National Safety Council (NSC), the multi-tasking required by driving and talking on the phone results in a distracted driver. They have termed this “inattention blindness” - the driver can look at something, such as a red light or stop sign, but not see it. The National Transportation Safety Board (NTSB) is calling for a ban on the use of all portable electronic devices while driving. A summer road trip vacation can be a dream or a nightmare. Helping your clients keep their summer vacation adventure from becoming a misadventure is a sign of the true insurance professional.

139 Harristown Road Glen Rock, NJ 07452, Suite 100 (800) 935-6900 www.msonet.com INSURANCE ADVOCATE / May 21, 2012 23

[ COVER ]

Imagine a situation where the insured, a lawyer, has a claim-made E&O policy. It contains your typical exclusion for indemnity of malicious prosecution claims and provides coverage for defense costs, and is a “burning limits” policy. After filing a case, the defendant “SLAPPS” the lawsuit, i.e., files a special motion to strike alleging the lawsuit falls within the SLAPP protection. The motion is granted, and attorney fees are assessed against the client for $75,000.

24 May 21, 2012 / INSURANCE ADVOCATE

continued from page 22

Ins. Co., 457 F.3d 1106, 1112. The basis is the concern that “the third party complainant, who may overstate the claims against the insured, should not be the arbiter of the policy’s coverage.” Id. at 1077, citing United W Grocers, Inc. at 1112, quoting Gon v. First State Ins. Co. v. First State Ins. Co. (1989) 871 F.2d 863, 869. For an act to be “willful” under the meaning of section 533, there must an intent to injure, or the act must be inherently harmful. Downey Venture v. LMI Ins. Co., (1998) 66 Ca1.App.4th 478, 500. Further, section 533 “does not bar coverage for conduct which may be wrongful, but which is not intentional or willful from the standpoint of the insured. “Melugin v. Zurich Can. (1996) 50 Cal.App.4th 658, 665. The critical analysis here involves the legal obligations, the contractual obligations and limitations, the merits of the underlying litigation, and, most significantly, the economic considerations of how to proceed in the defense of the impending claims. Imagine a situation where the insured, a lawyer, has a claim-made E&O policy. It contains your typical exclusion for indemnity of malicious prosecution claims and provides coverage for defense costs, and is a “burning limits” policy. After filing a case, the defendant “SLAPPS” the lawsuit, i.e., files a special motion to strike alleging the lawsuit falls within the SLAPP protection. The motion is granted, and attorney fees are assessed against the client for $75,000. The client hires a new lawyer and sends the claim to the former lawyer alleging that the former lawyer has committed malpractice by failing to advise the client adequately on revisions to the client’s claims. Additionally, the judgment of fees and costs against the client should be borne by the lawyer because the client asserts that he or she would not have commenced the action had he or she adequately known of the risks involved on bringing the underlying lawsuit. This distressed lawyer also receives the lawsuit from the underlying defendant alleging malicious prosecution. These issues are part of the claims adjusters’ desk of the former lawyer. How do you begin assessment? First, review the E&O policy form, and confirm

the terms and the rope burning limits. Next, determine the legal obligations imposed enforcing the limits and what may break open the policy restrictions to an unlimited liability based on the jurisdiction of the case. But such determination must be done very cautiously. If the adjuster claims too assiduously to the malicious prosecution exclusion, it may fuel the litigation to follow and create an economic boondoggle for the insurer. Imagine that the claim is denied on the basis of the malicious prosecution exclusion. The client’s claim will still be covered under exclusions for fraud, willful violations of law, etc. The insurer is on the hook for the defense of the client’s claim and must decide if it will consider one or both claims for coverage. The insurer must then retain coverage counsel to maintain the integrity of its position. The carrier will defend both claims, likely with separate counsel. Only at this point does the issue of the merits arise in relation to the underlying actions. Is the malicious prosecution itself barred by the SLAPP statute? Did counsel adequately advise the client on the merits and risks of the underlying litigation? Although it can be counterintuitive, jumping too soon to the merits may force the insurer into an inflexible and costly position. And, if the claims adjuster relies too heavily on the enforceable malicious prosecution provision of the exclusions, it will propel the parties into litigation that begins to “burn” the policy limits of the defense costs. The adjuster can expect demands from the former lawyer’s new lawyer demanding settlement before the defense costs exceed the policy limit. In this way, the stakes are raised for the insurer because a failure to settle within the policy limits is, in most jurisdictions, grounds alone for filing a claim. The underlying client who is now suing will likely take a stronger position against the lawyer to boost other measures of damages. The adjuster must retain coverage counsel to hold to the legitimacy of the insurer’s position, whatever that may be. Since defense retained for the former lawyer is reviewing the entire underlying file, coverage counsel may want to do the same. However, all of these actions exponentially raises the cost of handling the claims.

The Benefits of Mediation When faced with a scenario like the previous one, it’s important to insist on mediation as a solution. The preliminary costs of merit and coverage analysis will involve expenses that may be sufficient to settle the entire matter before the parties even reach the discovery stage. An experienced legal malpractice adjuster knows the costs of reviewing the underlying file, which are better spent on early mediation efforts and may well result in settling the matter on favorable economic terms. When developing a mediation strategy, all defenses should be maintained and no concessions made. A careful cost assessment should be completed prior to the mediation, as it will provide the economic and business basis for any offers of settlement. To avoid revealing your economic analysis, the mediation approach should be carefully considered. Insurers differ on whether economic consideration should be a factor in negotiations. Some insurers believe only the merits will dictate what should be offered in settlement, otherwise it can fuel demand and meritless litigation. While this point can be negated in cookie-cutter litigation, it does not exist in this concept. It is critical that the costs proceeding, defending, and, ultimately, laying the groundwork for a possible trial should be central to preparation for mediation. It is essential that all relevant parties attend the early mediation. For the purposes of example, we have chosen to highlight only one insurer participating in the settlement. In an actual setting, there will likely be more than one carrier, which involves additional sets of considerations. To effectively handle SLAPP claims on their own or when combined with malicious prosecution claims, early mediation is critical in all cases. It may be that the parties skirmish on the information needed to effectively mediate, but those issues can be dealt with as part of the mediation process and negotiated efficiently. Early mediation is helpful for managing litigation and resolving portions. For example, the client who is suing for payment of fees and costs in the SLAPP litigation may settle and be satisfied early on. Such a settlement may help the development of the evidence in the malicious prosecution process if that action proceeds.

Effective strategies in complex mediations require a careful analysis of all future litigation costs, including separate coverage counsel on each side. Any expenses related to Possible exposure to the insured, as well as the insurer, must also be taken into account. Accurate cost assessments will allow the mediator to be more effective in communicating the exposure of all sides and encourage contributions from them toward a settlement package. This enables

the mediator to communicate the coverage issues to plaintiffs, who may believe there is enough money on the claim simply due to the insurers’ participation. Despite the hurdles, careful consideration and evaluation of the potential underwriting and attorneys’ fees ahead of time can expedite the settlement process. [IA]

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[ ACCURACY I N ADVERTISING ]

Advertising Regulatory Group Recommends Allstate Discontinue Certain Claims in ‘Mayhem’ Campaign NAD Finds Advertiser Can Support Certain Claims, Following Progressive Challenge

EW YORK, NY– The National Advertising Division of the BBB has just recommended that Allstate discontinue certain advertising claims made in its “Mayhem” advertising campaign, and modify additional claims. NAD determined, however, that the company could support one challenged claim, as well as the tagline: “Shop less. Get more. Make one call to an Allstate agent.” The claims at issue were challenged before NAD by Progressive Casualty Insurance Company, which features a “name your own price,” option for consumers. NAD is an investigative unit of the advertising industry self-regulatory system, administered by the Council of Better Business Bureaus. NAD reviewed express and implied claims, including: • “And if you named your own price on car insurance, you could be picking up this tab by yourself. So get Allstate. You could save some cash and be better protected from mayhem like me.” • “Dollar for dollar, nobody protects you from mayhem like Allstate.” • “And if you have cut-rate insurance, it may not pay for all this. So get Allstate. You could save money and be better protected from mayhem like me.” • Consumers will get better coverage at lower cost from Allstate, without the need to comparison shop. • Allstate provides better protection than other insurance companies. • Allstate will provide additional coverage, to cover the risks shown, for less than the cost that consumers are currently paying for insurance. The “Mayhem” campaign featured actor Dean Winters as Mayhem, a character who dramatizes various risks faced by drivers. NAD reviewed the commercials to determine whether they conveyed the unsupported message that Allstate always offers better insurance coverage, at lower 26 May 21, 2012 / INSURANCE ADVOCATE

NAD determined that the claim, “And if you have cutrate insurance, it may not pay for all this. So get Allstate. You could save money and be better protected from mayhem like me,” conveyed the accurate message that Allstate, like other insurance companies, offered the option of robust coverage which could protect consumers from the depicted “Mayhem.”

rates, than the competition. In “Tree Branch Mayhem,” a wind storm caused a tree branch to fall on a car parked by the side of the road. Mayhem stated: “And if you named your own price on car insurance, you could be picking up this tab by yourself. So get Allstate. You could save some cash and be better protected from mayhem like me.” The commercial ended with this voiceover: “Dollar for dollar, nobody protects you from Mayhem like Allstate.” In “Ref Mayhem,” a referee escaped an angry crowed by racing out of a stadium parking lot, hitting cars, driving over a sidewalk, through a fence and into someone’s front yard. Mayhem stated: “And if you have cut-rate insurance, it may not pay for all this. So get Allstate. You could save money and be better protected from mayhem like me.” The voiceover ends with “Shop less. Get more. Make one call to an Allstate agent.” In “Blind Spot Mayhem,” a driver attempting to change lanes collided with

another car. Mayhem stated: “And if you named your own price on car insurance, you could be paying for this yourself. So get Allstate. You could save money and be better protected from mayhem like me.” The voiceover ends with “Shop less. Get more. Make one call to an Allstate agent.” In an alternate version, the voiceover states, “Dollar for dollar, nobody protects you from mayhem like Allstate agents.” Following its review of the advertising at issue, NAD recommended that Allstate discontinue the “Ref Mayhem” commercial, finding that consumers could take away the unsupported message that Allstate’s policies provide coverage for intentional acts like those committed by the referee. NAD determined that the claim, “And if you have cut-rate insurance, it may not pay for all this. So get Allstate. You could save money and be better protected from mayhem like me,” conveyed the accurate message that Allstate, like other insurance companies, offered the option of robust coverage which could protect consumers from the depicted “Mayhem.” However, NAD determined that the claim “And if you named your own price on car insurance, you could be picking up this tab by yourself. So get Allstate. You could save some cash and be better protected from mayhem like me,” conveyed the misleading message that consumers who name their own price for insurance would necessarily receive insufficient coverage. NAD recommended that the advertiser discontinue advertising that references Progressive’s Name Your Price in a manner that falsely implies that such an option will result in inadequate coverage. NAD also examined whether the “Mayhem” commercials falsely conveyed that consumers would save money on insurance premiums if they switched to Allstate. NAD concluded that the phrases “you could save some cash” and “you could save money,” do not clearly communicate the

advertiser’s intended message that consumers could save money on out-of-pocket expenses in the event of an accident if they carry adequate insurance. To avoid the potential for any consumer confusion, NAD recommended that the advertiser modify the claims to expressly communicate that “save some cash” or “save money” refers to saving money on costs associated with an accident, rather than on insurance premiums. With respect to the tagline, “Dollar for dollar, nobody protects you from mayhem like Allstate,” NAD determined that one of the messages conveyed was the unsupported claim that consumers would get more protection for their money with Allstate. Therefore, NAD recommended that the advertiser discontinue use of this tagline in the context in which it appeared in the challenged advertising. Finally, with regard to the tagline, “Shop less. Get more. Make one call to an Allstate agent,” NAD determined that consumers are likely to take away the accurate message that by making a single phone call to Allstate they will be able to purchase a policy which includes robust insurance coverage. Allstate, in its advertiser’s statement, said that while it respectfully disagrees with certain of NAD’s determinations, “Allstate is committed to the self-regulatory process and will take NAD’s recommendations into account in its future advertising.” NAD's inquiry was conducted under NAD/CARU/NARB Procedures for the Voluntary Self-Regulation of National Advertising. Details of the initial inquiry, NAD's decision, and the advertiser's response will be included in the next NAD/CARU Case Report. [IA] About Advertising Industry SelfRegulation: The Advertising SelfRegulatory Council establishes the policies and procedures for advertising industry self-regulation, including the National Advertising Division (NAD), Children’s Advertising Review Unit (CARU), National Advertising Review Board (NARB), Electronic Retailing Self-Regulation Program (ERSP) and Online Interest-Based Advertising Accountability Program (Accountability Program.) The self-regulatory system is administered by the Council of Better Business Bureaus.

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[ COURTSI DE ]

By Lawrence N. Rogak

Fraudulent Incorporation Concourse Chiropractic, PLLC v State Farm Mut. Ins. Co. Defendant moves for summary judgment. Plaintiff moves to compel discovery.[FN1]

BACKGROUND Concourse Chiropractic, PLLC ("Concourse") sues as assignee of Odalis Guzman ("Guzman") seeking to recover first party no-fault benefits for chiropractic treatment it provided to Guzman. Concourse submitted bills for treatment it provided to Guzman for the period 8/5/09 to 8/13/09 in the sum of $150, 9/2/09 in the sum of $33.70, 9/23/09 in the sum of $33.70 and 11/18/09 in the sum of $33.70. Defendant State Farm Mutual Insurance Company ("State Farm") acknowledges timely receipt of these bills. Concourse also submitted bills for the treatment rendered to Guzman for the period 11/13/08 to 12/18/08 in the sum of $425.44. State Farm asserts it paid these bills in full with applicable interest and attorney's fees on August 22, 2011. State Farm's special investigation unit ("SIU") has been investigating the operation of Concourse since 2006. Concourse is owned by Mitchell Zeren, D.C. ("Zeren"). Concourse operates out of 2676 Grand Concourse, Bronx, New York. State Farm has commenced a civil RICO action against CPT Medical Services, P.C. ("CPTMS") and its owner Dr. Huseyin Tuncel and other medical providers who State Farm claims are regularly prescribing and performing unnecessary Current Perception Threshold testing ("CPT testing"). During discovery in the civil RICO action, State Farm learned that Zeren was a practitioner who was referring patients to CPTMS for CPT testing. The record before this Court does not reflect how often or how many times Zeren referred patients to CPTMS for CPT testing. The record also does not reflect whether State Farm denied payment for those tests and if it did, whether actions were brought to recover payment of no-fault benefits for these tests and the outcome of those actions. The record also does not reflect whether Concourse referred Guzman for CPT testing. 28 May 21, 2012 / INSURANCE ADVOCATE

Zeren is also listed as the owner of MZJR Chiropractic Care, P.C. which he coowns with Jeffrey Rauch, D.C., Mitchell Zeren, P.C., Zeren Chiropractic, P.C. and Zeren Family Chiropractic, all of which are located at 2676 Grand Concourse in The Bronx. Zeren has also submitted bills to State Farm for treatment provided at Kingsbridge Chiropractic. Vista Medical and Rehab, P.C. ("Vista"), Blue Sky Acupuncture. P.C. ("Blue Sky") and Complete Medical Care Services of NY also submit bills with a billing and treatment address of 2676 Grand Concourse in The Bronx. State Farm claims it receives bills from Concourse that reflect Concourse is providing treatment to patients three to four times a week. These same patients are also receiving physical therapy treatment from Vista and acupuncture from Blue Sky at the same time. The progress notes submitted by Concourse, Vista and Blue Sky do not reflect the concurrent care regimens. Bills submitted by Concourse, Vista and Blue Sky use not only the same address but also use the same telephone number. This telephone number is also listed as the telephone number for Zeren Chiropractic, Kingsbridge Chiropractic and Complete Medical Care. Vista is owned by Abiola Olawale Familusi, M.D. ("Dr. Familusi"). Dr. Familusi is associated with Multiviz Health Management Corp. ("Multiviz"). The New York State Department of State records indicate Belle Solomon ("Solomon") is the CEO of Multiviz. Solomon does not hold any professional licenses. Concourse, Vista and Blue Sky have previously used Multiviz address as its billing address. The claims in question in this action do not use Multiviz address as a billing address. The claims use Concourse's Grand Concourse address as the billing address. State Farm asserts Concourse use of Multiviz address as a billing address, the existence of a protocol scheme involving Concourse, Vista and Blue Sky and other information obtained in the civil RICO

action raise concerns about the operation of these entities and suggest that someone other than the licensed professional listed as the owners are actually controlling the operation of these entities. Despite these concerns, Concourse and the other Zeren related practices do not appear to be defendants in the civil RICO action. Based upon this factual backdrop, State Farm sent a letter to Concourse dated October 1, 2009 acknowledging receipt of its claim for treatment provided to Guzman during the period August 5 through August 13, 2009 and requesting the Concourse appear for an Examination Under Oath ("EUO") at the offices of McDonnell & Adels on October 27, 2009 at 10 a.m. In addition to appearing at the EUO, the letter requested Concourse produce at least seven days prior to the EUO the documents relating to the ownership of the PLLC, the general ledger and tax returns of Concourse for the past 12 months, a list of individuals who provided and/or supervised the health care treatment for which payment was requested identifying the professional license held by that individual and the relationship of that individual to Concourse (e.g., whether the person was an employee or independent contractor), documents relating to entities that rent space and/or equipment to or from Concourse and a completed and signed NF3 and an assignment of benefits forms that included the 2004 updated fraud language. Concourse did not respond this EUO letter, did not provide the documentary material requested in the EUO letter and did not appear for the EUO. Upon receipt of the claim for the services rendered on September 2, 2009, State Farm send a letter dated October 13, 2009 advising Concourse it would not pay this claim until Concourse produced the material requested in the October 1, 2009 letter and appeared for the EUO requested by the October 1, 2009 letter. By letter dated November 2, 2009, State Farm notified Concourse that Concourse had failed to appear for an EUO. The letter further acknowledges the receipt of the

[ COURTS I DE ] claim for the services provided on September 23, 2009 and advised Concourse it would not pay these claims until Concourse appeared for an EUO and produced the requested documents. The letter advised Concourse the EUO to appear for an EUO on November 16, 2009 at 10 a.m. at the Garden City offices of McDonnell & Adels. Both the October 1, 2009 letter and November 2, letter advise Concourse that if the date, time and location is inconvenient, Concourse is to contact State Farm to reschedule the EUO at for a date, time and location that was convenient for Concourse. Both letters also advise Concourse that the person appearing for the EUO will be reimbursed for lost earnings and reasonable transportation expenses. Concourse did not respond to this letter in any way and did not appear for the EUO scheduled for November 16, 2009. As a result, on November 18, 2009, State Farm issued a denial of the aforementioned claims. State Farm also denied a claim submitted by Concourse for treatment provided to Guzman on November 18, 2009 on the grounds Concourse had failed to appear for an EUO. Concourse's motion is a standard motion to compel discovery. Concourse served a demand for interrogatories and a demand for expert information upon State Farm. State Farm has not responded to these demands. Concourse seeks an order striking State Farm's answer because it has not responded to the discovery demands or alternatively for an order directing State Farm to respond. Concourse does not assert any of the information it demanded by way of discovery is necessary to oppose State Farm's motion for summary judgment. See, CPLR 3212(f).

DISCUSSION Plaintiff 's argument that defendant has failed to prove mailing is without merit. All of the cases cited by plaintiff on the issue of mailing were decided prior to St. Vincent's Hosp. of Richmond v. Government Employees Ins. Co., 50 AD3d 1123 (2nd Dept. 2008). St. Vincent's established a carrier could prove mailing by either by providing actual proof of mailing or the existence of an office practice and procedure designed to ensure timely and proper mailing of notices.

In order to overcome the presumption of mailing, plaintiff must establish the person making the affidavit attesting to the mailing or the carrier's practices and procedures regarding mailing was not employed by the carrier when the notice was mailed and cannot establish the procedures described in the affidavit were in place when the notice was mailed, the carrier did not provide proof in admissible form establish actual mailing of the notice or any other evidence of its standard office practices and procedures for mailing denials and/or notices at the pertinent time. South Nassau Orthopedic Surgery and Sports Medicine, P.C. v. Auto One Ins. Co., 32 Misc 3d 129(A) (App.Term 2nd, 11th & 13th Jud. Dists.); Friendly Physicians, P.C. v. Geico Ins. Co., 29 Misc 3d 128(A) (App.Term 2nd, 11th 7 13th Jud. Dists. 2010);and Points of Health Acupuncture, P.C. v. Geico Ins. Co., 25 Misc 3d 140(A) (App.Term 2md, 11th & 13th Jud. Dists. 2009). In all other cases where mailing has been contested, the Appellate Courts have found proof of mailing to be satisfactory. The Appellate Term has found proof of mailing sufficient even when confronted with an affidavit from plaintiff's medical biller specifically denying receipt of a verification request. Pomona Medical Diagnostic, P.C. v. Travelers Ins. Co., 31 Misc 3d 127(A) (App.Term, 2nd, 11th & 13th Jud. Dists. 2011). Therefore, the proof submitted is sufficient to establish the EUO requests were mailed to Concourse. The case raises again the issue of whether an insurer can demand as part of its EUO request material that would constitute discovery that could be obtained in a properly raised Mallela defense [See, State Farm Mutual Ins. Co. v. Mallela,4 NY3d 313 (2005)] and whether an insurer can request documents be produced seven days prior to a scheduled EUO. State Farm has established it has a factual basis and a founded belief that Concourse may be subject to a Mallela defense. However, the no-fault regulations do not contain any provisions that permit an insurer to demand production of documents in connection with the an EUO. The regulations do not contain any provisions that require a party to produce such material at least 7 days in advance of the EUO. Verification is permitted to "verify the claim". 11 NYCRR 65-3.5(c).

A Mallela defense has nothing to do with the claim. A Mallela defense relates to the status of the claimant and the claimant's eligibility to obtain payment of no-fault benefits. While the Court of Appeals uses the language of fraud to describe a Mallela defense, Mallela has nothing to do with common law fraud. Common law fraud involves "misrepresentation of a material existing fact, falsity, scienter, deception and injury." Channel Master Corp. v. Aluminum Limited Sales, Inc., 4 NY2d 403, 407 (1958). In reality, Mallela is akin to a piercing the corporate veil. TNS Holdings, Inc. v. MKI Securities, Inc., 92 NY2d 335 (1998) and Matter of Morris v. New York State Dept. of Taxation & Finance, 82 NY2d 339 (1993). Mallela is based upon Business Corporation Law §§1507 and 1508 and Education Law §6507(c)(i) that prohibit anyone who is not licensed to practice the profession for which the professional corporation was formed from having an ownership or controlling interest in a professional corporation. The factual foundation of a Mallela defense involves proof that persons not licensed to practice the profession for with the professional corporation, limited liability company or limited liability partnership was formed are the actual owner or are actually controlling the operation of the business. The licensed individual has done little more than permit his or her license to be used as a basis to form the business. The licensed professional turned the operation of the corporation over to the non-professionals by signing management agreements that provided for excessive fees for routine office or practice management services, office and equipment leases that provided for excessive lease payments and in all other respects turn the operation of the professional corporation to the non-professionals. Andrew Carothers, M.D., P.C. v. Insurance Companies Represented by Bruno, Gerbino & Soriano, LLP, 26 Misc 3d 448 (Civil Ct. Richmond Co. 2009).[FN2] The court notes that although this has been dubbed a "Mallela defense" the Court of Appeals decision was a result of a action brought by State Farm seeking a declaratory judgment that it was not obligated to pay no-fault claims submitted by Dr. Mallela because his professional corporation was continued on page 30

INSURANCE ADVOCATE / May 21, 2012 29

[ COURTSIDE ] continued from page 29

actually controlled by persons not licensed to practice medicine. The court notes that in dicta in Mallela the Court of Appeals anticipated carriers would delay payment of claims only to pursue investigations for good cause, that the Insurance Department would investigate possible abuses by the carriers and carriers would be able to demonstrate "good cause" only upon a demonstration of conduct tantamount to fraud. The court further notes that Court of Appeals apparently believed that if insurers had good cause to believe a medical provider was "fraudulently incorporated" the insurer would commence a declaratory judgment action seeking to a judgment that the medical provider is not eligible to receive no-fault payments. The court believes that the Court of Appeals did not anticipate an insurer would demand for an EUO and extensive corporate records in connection with a matter in which the carrier has already paid the provider $450 in no fault benefits and the existing dispute involves an unpaid claim for no-fault ben-

30 May 21, 2012 / INSURANCE ADVOCATE

efits of $251. The court notes State Farm paid the nofault benefits to Concourse after Concourse defaulted in appearing for an EUO. Thus, State Farm paid Concourse no-fault benefits for treatment provided to Guzman even though it had an absolute defense to that claim. See, Unitrin Advantage Ins. Co. v. Bayshore Physical Therapy, P.C., 82 AD3d 559 (1st Dept. 2011) - a carrier can deny all no-fault claims retroactive to the date of the accident if a claimant fails to appear for an EUO. The demand for information in this case is virtually identical to the demand this Court found impermissible and improper in Dynamic Medical Imaging, P.C. v. State Farm Mutual Automobile Ins. Co., 29 Misc 3d 278 (Dist. Ct. Nassau Co. 2010). See, also, Brownsville Advance Medical, P.C. v. Country Wide Ins. Co., 33 Misc 3d 1236(A) (Dist. Ct. Nassau Co. 2011) - Mallela type material cannot be obtained as verification of the claim.[FN3] Requesting an provider to produce voluminous corporate records in order to obtain payment of a no-fault claim is an abuse of the EUO and the entire verification process.

A Mallela defense is non-precludable and can be raised at any time. Lexington Acupuncture, P.C. v. General Assurance Co., -Misc.3d-, 2012 WL 661685 (App.Term 2nd, 11th & 13th Jud. Dists. 2012). The appropriate way to obtain Mallela material is to properly plead it as a defense to an action to obtain payment of no-fault benefits and establish a reasonable basis for requesting the material [Midborough Acupuncture, P.C. v. State Farm Ins. Co., 21 Misc 3d 10 (App.Term 2nd & 11th Jud. Dists. 2008)] or to bring a declaratory judgment action seeking a judgment declaring the provider is not eligible to obtain no-fault benefits because the licensed professional is a front for a professional corporation that is actually owned and controlled by non-professionals. Such a procedure would also have the advantage by having the parties obtain a full and final disposition of the insurer's assertion the provider is ineligible to obtain payment of no-fault benefits. The only explanation this court can find for this repeated and repetitive use of a request for an EUO and Mallela verification is the insurer's hope that the provider will

[ COURTS I D E ] not respond thus providing the insurer with an absolute defense to an action that is otherwise indefensible. For the foregoing reasons, the court finds defendant's EUO notice palpably improper. Defendant's motion for summary judgment is denied. Defendant's motion for summary judgment stayed discovery. CPLR 3214. Defendant did not oppose plaintiff's motion to compel discovery. Defendant should now be given the opportunity to oppose plaintiff 's discovery motion. Therefore, plaintiff 's motion to strike defendant's answer for failing to respond to plaintiff 's discovery demands is restored to the motion calendar of Civil Part 3, for May 14, 2012 at 9:30 a.m. In Brownsville, supra, Country Wide repeatedly requested the same information by way of verification from Brownsville even though Brownsville had previously provided the information and even though much of the information Country Wide was requesting could have been obtained or confirmed in a matter of minutes through free, publically accessible web-site data bases maintained by the New York State Department of State and the New York State Department of Education. Comment: The Court here appears to draw a distinction, as a matter of first impression, between "Malella" discovery as part of the claims process, and the same discovery as part of a lawsuit or declaratory judgment action based on fraudulent incorporation. So far as I know, there is no appellate authority for keeping Malella discovery out of the claims verification process even where, as here the claim is for only $251. The Court here draws an inference that the Court of Appeals did not anticipate Malella discovery in every claim. However, the Court of Appeals has expressed its displeasure with the abuse of no-fault benefits, not just in Malella but in other decisions. The fact that a P.C. that is fraudulently incorporated is not entitled to no-fault benefits, and the fact that the DFS (f/k/a the Insurance Department) just the other day issued new anti-fraud regulations, is a strong indication that at least in those instances where there is a "founded belief " that a P.C. is fraudulently incorporated, the insurer should be allowed to explore that issue to any reasonable degree -- even in a claim for one dollar in benefits.

This is not to say that it is possible to abuse the Malella defense, burying a medical provider in verification demands without just cause. But it is the job of the judge to sort out the legitimate Malella defenses from the frivolous ones. Where, as here, the judge has stated on the record that the insurer has a founded belief that a medical provider may be fraudulently incorporated, the insurer should be permitted to use the EUO and verification process to establish that defense. If the provider chooses not to show up for the EUO, as here, in a case where there is a founded belief in fraudulent incorporation, then it does so at its own risk. Certainly, there are instances where EUO requests on a provider have no founded basis -- that's a different matter. But in a case like this, the no-show should have resulted in summary judgment for the insurer. [IA] 2012 NY Slip Op 50676(U) Decided on April 16, 2012 District Court Of Nassau County, First District Hirsh, J. FN1: Defendant has also moved to compel discovery. Defendant has withdrawn its motion to compel discovery and requested the court consider the papers submitted in support of its motion to compel discovery as its opposition to plaintiff's cross-motion to compel discovery. FN2: The proof at trial in Carothers established the professional corporation was paying monthly lease fees to lease equipment in excess of the cost to purchase equipment. The licensed professional was not a signatory to the corporation bank account. The non-licensed individuals regularly withdrew significant sums of money from the corporate bank account to pay personal expenses. Dr. Carothers was receiving a fixed salary not dependent upon the income of the corporation and had almost no input on the operation of the business. The proof further established Dr. Carothers had limited participation in the medical activity of the professional corporation. FN3: The practical experience this court having heard and decided cases involving first party no-fault claims for over 3 ½ years is contrary to the expectation of the Court of Appeals when it decided Mallela. State Farm sent the same EUO request to Dynamic Medical in what appeared to be every claim Dynamic filed with State Farm. Over 50 motions identical to the one this Court decided in Dynamic Medical v. State Farm, supra were stayed by this Court pending the Appellate Term hearing and determinating the appeal State Farm took from this Court's order. This does not include similar motions that were made, heard and decided in the three other civil parts of this Court. The actions were resolved prior to the Appellate Term hearing and deciding the appeal.

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[ LOOKING BACK… Insurance Advocate, 25 years ago]

PIANY, he admitted, “would prefer to see more stringent regulation, but finds that the proposed bills provide the maximum possible protection for the state’s businessowners and claimants within the severe limits imposed in the federal law.”

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Lundgren said he was optimistic that legislative reforma enacted in New York State in 1986 — including flex rating for certain lines, modification of the rule of joint and several liability, structured awards for certain settlements and more advance notification for non-renewals — will be beneficial to policyholders and insurers.

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INSURANCE ADVOCATE / May 21, 2012 33

[ THE LAST WORD ]

By Sari Gabay-Rafiy, Esq.

Proposed Insurance Regulation No. 68-C: No Fault Insurance

he Superintendent of Financial Services has proposed Regulation No. 68-C to address no-fault insurance fraud. The proposed regulation is

claim denial. Regulation 68-C is intended to give insurers more time to prove fraud and prevent payment, and therefore provide a

No fault insurance fraud costs no-fault insurers tens if not hundreds of millions of dollars which insurers pass on to New York consumers in the form of higher insurance premiums.

Sari Gabay-Rafiy, Esq.

designed to curb abuse of the no-fault insurance system. Highlights are as follows: • Health care providers will have to comply with a 120 day period to provide requested information or the claim can be denied. • An insurer’s non-substantive technical error when processing a claim will not negate the obligation to comply with the request or notice. More specifically, Regulation No.68-C will require healthcare providers to provide a response within 120 days of an insurer’s verification request, or provide reasonable justification why it cannot do so. An insurer may deny the claim if this time period is not complied with. Additionally, a technical error cannot be used to avoid responding to a verification request and does not invalidate an otherwise proper

remedy to insurers when doctors and other health care providers bill in excess of applicable fee schedules or for services not actually rendered. Among other things, Regulation 68-C is aimed at reducing no-fault insurance fraud and timely resolving no-fault claims, thereby curtailing the increase in automobile insurance premiums passed on to consumers. The proposed draft regulation will be printed in the State Register on May 16, 2012, at which time the 45-day period for public comment begins to run. Notably, on March 9, 2012, the Superintendent of Financial Services promulgated, on an emergency basis, Regulation No. 68-E, to address standards and procedures for investigating and suspending or de-authorizing providers of health services upon findings of certain unlawful conduct after investigation,

notice and a hearing. Regulation 68-E, which was prepared by the Department of Financial Services (“DFS”) in consultation with the Commissioner of Health and the Commissioner of Education, is also designed to curb abuse of the no-fault insurance system. The preamble of Regulation No. 68-E explains that certain professional services entities are “involved in activities that include intentionally staging accidents and billing no-fault insurers for heath services that were unnecessary or never in fact rendered.” No fault insurance fraud costs nofault insurers tens if not hundreds of millions of dollars which insurers pass on to New York consumers in the form of higher insurance premiums. The new DFS regulations are part of a statewide initiative to clean up New York’s no-fault insurance system. As part of the statewide initiative, doctors who engage in fraudulent and deceptive practices with be banned by the DFS from participating in the no-fault system. According to a recent press release issued by the DFS, it has already identified 135 medical providers whose billing practices raise concerns regarding possible nofault fraud, with investigations are ongoing. We will likely see heightened regulation and increased disciplinary and other action in the area of no-fault insurance. [IA] This article is for informational purposes only and is not intended to give legal advice. For insurance regulatory questions or other legal matters, please contact Sari Gabay-Raﬁy at 212-941-5025 or gabay@gabaybowler.com.

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